Australia's Coal Sector Struggles for Cover in Tough Market
June 11, 2020 - Businesses associated with the coal mining industry are facing soaring premiums and difficulty gaining cover due to political and environmental pressures that have reduced capacity amid a hardening market, brokers say.
Australia's CRE Insurance Broking says coverage issues extend through the supply chain “from pit to port to light switch” and affect insurance for mining assets, professional indemnity cover for engineers and vehicle fleet insurance.
“In the current environment, businesses with any direct or indirect exposure to the coal sector are being punished as many insurers withdraw their underwriting support to the sector,” says CRE Insurance Broking MD David Harrison.
“An increasing number of insurance carriers are not only reluctant to continue their support of the coal producers themselves but are also withdrawing their underwriting capacity through the entire supply chain.
“Businesses with a minimal direct exposure or even the perception of exposure to the coal sector, are finding it difficult to maintain support of key insurance markets.”
Broking Director Adam Battista says the firm is in constant communication with clients as they are “hugely affected” by shifting appetites of the insurance market and drastic program changes.
“It’s difficult to prepare them entirely for the changes they face year to year as it varies from pricing, program structures, self-insured retentions, where it’s placed or, most recently a combination of these,” he says.
Pressures are greater for thermal coal but distinctions are often not made between metallurgical coal required for steelmaking and thermal coal used in power generation, he says.
CRE is critical of the Unfriend Coal campaign, stressing the commodity’s importance for Australia’s economy and its role in global infrastructure development and in providing fuel for countries that would otherwise use alternative supplies with higher environmental costs.
Difficulty obtaining cover from insurers regulated by the Australian Prudential Regulation Authority is also requiring brokers to look at cover from unauthorised foreign insurers (UFIs).
Newcastle-based Ausure Horizons Co-Director David Summers says many businesses in the region have links with coal and are affected by the reluctance to take on risks associated with the industry.
Insurers have also taken a tough line on any type of complex risk and have clamped down on professional indemnity cover in many areas.
“There is a complete lack of flexibility in being able to underwrite. They would rather say ‘yes’, or ‘no’ and that’s it,” he says.
Unfriend Coal’s website shows that by July last year 17 insurers globally had adopted a policy restricting coal sector coverage, and the group is pushing for stronger action as part of action to address climate change.
“While it is good to see some insurers, particularly those based here in Australia, restricting their coal underwriting and investment, they all still need to go a lot further,” Insurance Campaigner at Market Forces Pablo Brait says.
“If the insurance industry was acting according to both the science and its own interests, it would be impossible for new coal, oil or gas projects to get any insurance and existing projects would only be insured on the condition that phase-out and closure dates are set.”
AUB Group CEO Mike Emmett says the company is examining its coal exposure as part of the preparation of this year’s Environmental, Social and Governance Statement after previously not formally collecting the information.
Investors and larger clients are asking questions about energy exposures and environmental issues, including the extent to which customers are involved in supplying the coal industry, he says.
“There is certainly more questioning about it this year than we had last year,” he said. “Clearly it is a hot topic.”
Emmett says it is still early days for finalising mid-year renewals but premium rate moves on average are in line with expectations for a 5-6% range, while insurers are not showing signs of extending timeframes for remediating portfolio profitability.
“We have not seen any evidence of that,” he said. “It seems as if premium rate increases are coming through as if the economy is returning to normal.”